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The Top 3 Ways to Trade On Coronavirus Volatility

There’s no end in sight to the coronavirus scare.

Source: Shutterstock

There are more than 80,000 global cases, with more than 2,700 recorded deaths (primarily in China). Over 1,000 cases have been reported in South Korea, with a death toll of at least 11. Iran’s Deputy Health Minister has been infected. We’re seeing cases appear in Switzerland, Austria, the UK, Spain, Japan and Italy. And a new case of unknown origin has just been identified in California.

The World Health Organization (WHO) just warned of a shrinking window of opportunity to stop the virus, as well.

“The window of opportunity is still there. But our window of opportunity is narrowing,” said WHO Director-General Tedros Adhanom Ghebreyesus. “We need to act quickly before it closes completely.”

So, it’s no wonder that economists are advising investors not to buy the market dip.

“Just because buying market dips has worked in the past does not mean it’s going to work this time” said Mohamed El-Erian. “I would continue to resist, as hard as it is, to simply buy the dip.”

Some of the top ways investors have been investing in the coronavirus story has been with stocks such as Alpha Pro Tech (NYSEAMERICAN:APT), Inovio Pharmaceuticals (NASDAQ:INO), and Moderna (NASDAQ:MRNA), as I wrote at the end of January.

However, there are other opportunities. With markets falling on fear, the Volatility Index recently exploded from a low of 14.5 to 25. That could run even higher, which is already sending investors into these opportunities.

Top Volatility Trades: ProShares Ultra VIX Short-Term Futures ETF (UVXY)

The Pro Shares Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY) was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. Over the last few days, the UVXY ran from a low of $10.66 to a recent high of $16.06. Should things worsen with virus, I believe we could see $22, near-term.  That’s especially true if the virus hits the U.S.

“We increasingly find it hard to believe that USA cases are as low as reported, and believe that given the flow of Chinese, Korean and Iranian nationals into North America, a large USA community-based outbreak is increasingly likely,” said Jefferies analysts Simon Powell.

Velocity Shares Daily 2x VIX Short-Term ETN (TVIX)

An exchange-traded note (ETN), the Velocity Shares Daily 2x VIX Short-Term ETN (NASDAQ:TVIX) tracks futures contracts on the S&P 500 VIX Short-Term Futures Index. Over the past few days, the TVIX ETN has run from a low of $38.92 to a recent high of $66.19. Should virus headlines worsen, I believe it could rally to $80.

iPath S&P 500 VIX Short-Term Futures (VXX)

The iPath S&P 500 VIX Short-Term Futures ETN (AMEX:VXX) provides exposure to the S&P 500 VIX Short-Term Futures Index Total Return. In recent days, the ETN has jumped from a low of $13.42 to a recent high of $18.17. Prices could rally to $20 near-term as markets crater.

As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.

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